Unskilled immigrant labor and offshoringSome highlights from the research presented at the conference include a paper by University of California, Davis professor Giovanni Peri that was recently profiled in the New York Times. Peri argues that unskilled immigrant labor helps prevent U.S. firms from relocating offshore.

The paper cites evidence indicating that less-educated immigrants are employed in jobs that require more manual and routine-intensive tasks and on average do not compete for jobs in which the bulk of native workers are employed. Those jobs tend to be more cognitive and nonroutine-intensive type of work. In other words, immigrants and low-skilled native workers are not substitutes but complements. In fact, unskilled immigrants compete more with offshore workers. The paper concludes that immigration generates cost-savings for U.S. firms and thus a corresponding increase in productivity, so immigration's aggregate effect on the level of low-skilled native employment in the United States is positive.

Remittance feesIn 2008, immigrants sent $336 billion to their relatives in developing countries, and in many countries remittances are often greater than private capital flows and official development aid combined. Remittance flows also generate billions of dollars in fees.

Dean Yang, from the University of Michigan, quantifies the impact of money transfer fees on remittances flows. Using a unique field experiment among Salvadoran migrants in the Washington, D.C., area, migrants were randomly assigned discounts on remittance transactions fees. Surprisingly, minor reductions in remittance fees led to large increases in total transfers. For instance, a $1 reduction in transaction costs generated $25 more remitted dollars per person per month. This finding suggests that a reduction in transaction costs can lead to very sizable gains in recipient countries.

Sponsorship of family membersAlthough countries such as Canada and Australia prioritize the entry of young, skilled foreign workers, the U.S. immigration system strongly emphasizes family reunification, which is a method where naturalized immigrants can sponsor relatives (spouse, children, parents, and siblings) in their immigration to the United States. Sponsoring new immigrants means that migrants not only are a major source of remittances, but they can fundamentally shape the flow of immigration by assisting migration of their relatives.

Until now, researchers had limited data on sponsors' behavior. Using a new immigration survey, Yale University professor Mark Rosenzweig presented research that for the first time explores the role of sponsorship. He shared preliminary results showing that while immigrant children who are less educated tend to receive remittances from their relatives who have immigrated to the United States, children with more schooling are able to take better advantage of the U.S. job market and are the first ones to be sponsored.

Other papers included research aimed at quantifying the effect of female migration on children left behind, the impact of immigrants on the educational attainment on natives, the productivity gains from skilled migration into the United States, and the role of seasonal migration in mitigating famine in Bangladesh. All of the conference papers are available.

By Stephen Kay, senior economist and coordinator of the Atlanta Fed's Americas Center, and Federico Mandelman, research economist and assistant policy adviser, both of the Atlanta Fed's research department

Comments

The remittance fee of those immigrants must be clearly stated to them so that there will be no more problems. This is a hot issue since I am one those immigrants in the world who question the remittance fee,

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May 28, 2009

Housing starts, remittances and macroeconomic developments

Recent evidence collected by the Dallas Fed's Pia Orrenius suggests that apprehensions of undocumented workers attempting to cross the U.S.–Mexican border are a good predictor of the overall American job market. Simply put, if one wanted to predict job market conditions in July of a given year, one should examine immigrant apprehensions in January. Orrenius finds that more immigrants attempt to cross the border from Mexico (and more of them are caught doing so) when immigrants believe the U.S. economy would offer more jobs in the near future.

One area of the economy that relied heavily on immigrant labor was housing. The following chart plots monthly U.S. housing starts (lagged five months) and remittances to Mexico. (I use year-over-year growth rates and smooth the noise from very short-run fluctuations by using a three-month moving average in my analysis.) I use remittances as a proxy for migrant Mexican labor.

The correlation between the two data series is strikingly high. For instance, the plunge in housing starts that began in early 2006 was followed by a sizable drop in remittances growth five months later. Of course, the results are not unexpected as the construction industry heavily employs immigrant labor.

Also, it is well known that immigrants send remittances to their country of origin on a regular basis. Some estimates indicate that the remittances sent by immigrants from developing economies back home reached $305 billion in 2008. (As an aside, keep in mind that because of unrecorded immigration flows through formal and informal channels, the actual numbers are likely to be significantly larger.) Remittances are particularly important for smaller Latin American countries. In 2007, for instance, recorded remittances represented more than 10 percent of the gross domestic product in several Latin American countries, including Honduras (25 percent), Guyana (24 percent), El Salvador (16 percent), and the Dominican Republic (13 percent), among others.

What is especially remarkable from a macroeconomic perspective is the volatility of these capital flows. During the housing boom, remittances to Mexico were growing at 20–25 percent annual rates (see the chart). With the onset of the global economic crisis, however, remittances have been declining, falling by almost 10 percent early this year. For smaller emerging economies, the volatility in remittance flows becomes a significant extra source of instability.

Migrant workers enter the country in response to upturns in domestic labor demand, and that upturn results in higher remittances both because of the increased number of immigrants but also because the existing stock of immigrant workers is earning more. Conversely, a downturn in labor demand should be reflected in lower remittance flows because of out-migration as workers return home and because of lower earnings among the remaining stock of migrants. But what happens when some of those workers have entered the country illegally?

In a study published in 1997, Belinda Reyes found that about two-thirds of the undocumented immigrants returned to Mexico within three years upon arrival. In a recent paper I wrote with Andrei Zlate, we explore the implications of changes to enforcement policies for the U.S./Mexican border on undocumented labor and remittances. We find that increased border enforcement during the last decade has broken the typical pattern of flows of undocumented workers. Basically, while increased enforcement makes it harder/more expensive to enter the country, it also reduces the incentive for those already in the country to leave. Why? Because of the high cost/risk associated with reentering the United States in the future.

In a recent paper, Carolina Rodriguez-Zamora adds support to our claims. She finds that as the U.S. Department of Homeland Security increases the amount of resources spent policing the border undocumented immigrants tend to stay longer.

Increased enforcement protects the existing stock of undocumented immigrants from additional competition, and this development can put upward pressure on wages when U.S. labor demand is high. When labor demand is low, rather than returning home, these individuals could remain in local labor markets, placing additional downward pressure on wages.

Comments

Your last conclusion should be enlightening. Free markets for wages make it more competitive lowering costs. Barriers to entry increase wages. Might make some people switch sides on an immigration debate!

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April 30, 2009

The undocumented and business survival in the United States

Based on the severe economic contraction during the past six months, it is obvious why the topic of the economy receives so much attention as the economy directly weighs on the lives of citizens and businesses here and throughout the world. But the weight of the economy can have indirect effects as well, including potentially shifting attention from other policy issues.

"The long campaign to overhaul U.S. immigration laws may be derailed for yet another year—this time by the deteriorating economy."

The immigration debate is multifaceted, complex, and, at times, contentious. There are myriad issues to consider when entering into the immigration reform discussion, many of which are best left to the political process to decide. But, as the Bloomberg article describes, there is an important economic component to the immigration discussion. Economists can make a modest contribution to the debate by supplying unbiased research that touches on various aspects of the immigration question.

In that spirit, I offer up the results of research I've done with my colleagues, Julie Hotchkiss of the Federal Reserve Bank of Atlanta and David Brown of Heriot-Watt University in Edinburgh. Our research looks into the potential impact of undocumented workers on firm survival and is based on confidential information from the state of Georgia, which between 2000 and 2008 experienced the fastest growth in the number of undocumented immigrants in the United States, according to the Department of Homeland Security.

In this research, we find that firms employing undocumented workers enjoy a competitive advantage over firms that do not employ undocumented workers. We also observe that firms engage in herding behavior, i.e., firms will employ undocumented workers if their competitors do. The herding behavior is a natural consequence of competitive pressure: Rival firms' undocumented workforce lowers a firms' survival probability, while a firm's own undocumented workforce strongly enhances that firm's survival prospects.

Our analysis suggests that cost savings enjoyed by firms employing undocumented workers is a result of paying these workers wages that are less than what is paid to comparable documented workers. Because the advantage of hiring undocumented workers is cost-related, herding behavior and competitive effects are weaker if firms have the option to shift labor-intensive production out of state or abroad.

Our findings have several implications relevant to the policy discussion. The most straightforward prediction would be that if immigration reform is successful in forcing firms to pay undocumented workers market wages, the competitive advantage of hiring these workers may disappear. As a consequence, the demand for undocumented workers might well dissipate.

In addition, reform efforts that reduced the supply of undocumented workers (e.g., through tougher border and worksite enforcement) would raise firms' production costs, which may have an impact on prices if firms pass through these additional costs to consumers. However, this last point is not a direct implication of our analysis.

One word of caution about this study: Our results are based on the payroll reports of employers. This study does not have information on the activities of undocumented workers that are not recorded on firms' official wage records.

There are, of course, many other aspects of immigration policy to be considered, and we are loath to characterize the results of our research as supporting any particular approach or conclusion. But we do hope it sheds some light on a debate that already has its fair share of heat.

Comments

And why won't businesses, seeing the advantage of the undocumented as you report here, replace the now documented with new undocumented workers at their earliest convenience?

Second, I know of many businesses that pay under the table to avoid taxes. If the IRS can't find these businesses, why are businesses paying the undocumented under the table suddenly going to find them when these workers are documented?

This is why the enforcement side must be perfected first. Only then can we consider creating a GIGANTIC inducement to more illegal entry.

In other words, if another contractor uses undocumented cash labor without paying workers' comp, FICA or other payroll deductions, I'll be forced: a) raise my prices; b) make less profit; or c) hire undocumented cash labor myself. If I don't do one of those things, I'll be out of business.

I'm sorry, but ten years ago most reasonably observant Americans figured this out without an economist's "analysis". We also figured THIS out: the undocumented receiving $10 an hour can send $2 per hour home to support his family. The documented, who is earning $8.50 to compete with the undocumented (because his documentation requires the employer to pay workers' comp, FICA and unemployment insurance), will never be able to support a family on that wage. His family lives here, in a dollar economy.

So the cheat gets a living wage while the legal worker barely gets by. The honest employer is driven out of business while the illegal employer is rewarded.

But wait! There's more! If you complain about this situation, you're labeled a racist or a xenophobe, not a concerned American. And if you're that struggling documented worker who can't support a family on $8.50 an hour, you're derided as not willing to do the "hard work" that immigrants are willing to do.

Bottom line: pay our documented workers enough to support their families and they'll do any work you ask them to do. Enforce laws against hiring illegal workers (very easy to do with social security numbers) and the legal firms will survive. All it takes is political will.

"We DON't have an illegal immigration problem, we have an ILLEGAL EMPLOYER PROBLEM."

Start prosecuting the EMPLOYERS and the "illegal" immigrant problem will take care of itself.
'
nonsense...hartmanns been bashing those of us who want border laws enforced since 'last hours of ancient sunlight'
the problem goes way beyond employers...
do you think drug dealers/ prison guards union/ teachers union want u.s. population to level off?
hartmanns full of it

This is a bogus argument. Increased immigration is a sign of a booming economy. The construction business and low level service business was going gangbusters during the greater part of the 2000-2008 timeline. This means that there was a need for undocumented immigrants which flooded this country. This is simple market economics. If you don't like it, swim to Cuba and find out how it works. There was demand for labor and labor came. Who do you think built all the crappy homes in the Atlanta suburbs? Who staffed all the new McDonalds and malls that opened in the exurbs? The illegals. We Americans decided we wanted to spend rather than work hard for a living and now we are complaining about immigrants. Get a grip you all. Business is going to do what it has to in order to increase profits. That's the American way and that's why we are the most powerful country in the world.

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"I want an integrated Europe, in other words, a Europe that has borders ... Turkey is in Asia Minor."

... and immigration control is front and center:

"Who can't see that there's a clear link between the uncontrolled immigration of 30 or 40 years and the social explosion on our housing estates?"

The immigration issue is a complicated one, and I have no business commenting a sovereign nation's assessment of how to best deal with the social consequences of open borders. But this story, from the Wall Street Journal (page A2 in the print edition), provides an interesting juxtaposition:

The quality of life for some 80 million graying baby boomers in the U.S. may depend in large part on the fortunes of another high-profile demographic group: millions of mostly Hispanic immigrants and their children.

With a major part of the nation's population entering its retirement years and birth rates falling domestically, the shortfall in the work force will be filled by immigrants and their offspring, experts say. How that group fares economically in the years ahead could have a big impact on everything from the kind of medical services baby boomers receive to the prices they can get for their homes.

The article does not make a French connection, but one is not hard to conjure up. A few years back, a Rand Corporation study had this to say:

The history of French population change is atypical; secular fertility decline began one century before the rest of the West. As a consequence, France had the oldest population in the world over the entire period of 1850–1950. The baby boom after the Second World War created a temporary increase in the number of births, but thereafter the fertility decline resumed. With current below-replacement fertility and increased life expectancy, population ageing is expected to reach new heights...

Family policies in France are a complicated mix, as the Rand article makes clear, and recent efforts at promoting fertility among native French citizens appear to have met with some success. But this bottom line judgment, from the UN, remains relevant:

In most developed countries, the decline in fertility and the increase in longevity has raised three concerns for the future: the decrease in the supply of labor, the socioeconomic implications of population aging, and the long term prospect of population decline and demise...

On the medium run, the next ten years or so, the labor market is the main focus of concern. The reference system comprises here the set of supply and demand variables that determine the employment equilibrium. The impact of fertility and mortality changes is for that purpose at this time horizon very limited. Conversely, international migration could play a decisive role, as well as other socioeconomic variables.

For the long run, - from 2020 to the population projections horizon 2040-2050- structural imbalances of the age distributions are things to worry about.

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April 13, 2006

What (Some) Economists Have To Say About The Economic Effects Of Immigration

Nearly 80% of economists who responded to questions about immigration
in the latest WSJ.com forecasting survey said they believe undocumented
workers have an impact on the bottom rung of the wage ladder. Twenty
percent believe the impact is significant, while 59% characterize the
effect as slight. The remaining 22% said there is no impact...

About half of the economists said the presence of illegal immigrant
workers has slightly reduced the overall rate of inflation in the
economy, while 8% said the inflation rate has been reduced
significantly. But 41% said they believe undocumented workers have had
no impact at all on inflation.

Okay, let me try this again. To the extent that wage costs exert pressure on the pace of consumer- or output-price increases, it is wage growth in excess of productivity growth that matters. If the wages of any particular subset of workers are lower because their productivity is lower, there are absolutely no consequences at all on prices or their growth rates.

In fact, the low productivity explanation for low wages seem to be exactly what most of the survey respondents have in mind:

On balance, nearly all of the economists – 44 of the
46 who answered the question – believe that illegal immigration has
been beneficial to the economy. Most believe the benefits to business
of being able to fill jobs at wages many American workers won't accept
outweigh the costs.

I could be wrong, but I'm guessing that the opinions of most of those surveyed are based more on gut feeling than research. If it's research you are looking for, try out Alan Krueger's suggestions (and tip your along the way in the direction of Brad DeLong).

Comments

“To the extent that wage costs exert pressure on the pace of consumer- or output-price increases, it is wage growth in excess of productivity growth that matters. If the wages of any particular subset of workers are lower because their productivity is lower, there are absolutely no consequences at all on prices or their growth rates.”

This of course is the cost-push fallacy of inflation. Cost-push fallacies of inflation attribute the cause of inflation to a whole host of reasons: rising energy prices, rising health care costs, increases in wage costs, monopolies, and on and on. Cost-push fallacies have existed for hundreds of years and have been criticized by economists such as Ricardo, Wicksell, Fisher, and Cassell. The price level is not determined by cost-push but by changes in the velocity augmented money supply per real output. P = MV/Q. No attempted was made to explain how wage-costs affected money, velocity, or real output.

Read this economic blog at your own risk. It could be damaging to one’s rational thinking. Note well: Alan Krueger’s paper also contains poor economic reasoning.

tom -- The relationship between unit labor costs and prices is an implication of the standard New Kenynesian or New Classical Synthesis framework. You may not like that framework, but I would note three things: (1) It is, by a long shot, the dominant paradigm of moden macroeconomics; (2) It is not necessarily inconsistent with the notion that inflation is ultimately a monetary phenomenon; (3)Monetarists are really just Keynesians who choose a different point (or points) of emphasis. A very nice primer on the New Keynesian framework can be found here: http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2004/goodfriend.pdf

Also, if you have specific objections to Kreuger's comments, I would be glad to engage them (and even accept them if yourargument is a goode one). But its a little hard to evaluate the simple assertion that his reasoning is poor.

spencer - My answer is a simple one. If the labor that comes and goes is market-driven, the outcome is probably the right one. I realize, of course, that there are lots of distortions that can drive a wedge between market outcomes and "the best" outcomes, but I'm convinced a supply of competitvely cheap labor is one of those cases.

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April 04, 2006

Immigration and Time Inconsistency

Right now in the Senate, the two major [immigration] plans being debated
are from Majority Leader Bill Frist and Judiciary Committee
Chairman Arlen Specter. Frist's bill focuses primarily on border
protection, and has been characterized as an "enforcement only''
proposal. Specter's proposal borrows from a bill that Senators
John McCain and Ted Kennedy introduced last year. It includes
provisions for temporary guest worker visas and for legalizing
the status of currently undocumented individuals...

The Frist bill and an immigration measure passed by the
House of Representatives in December provide for stiff
enforcement measures, including felony charges for smuggling
illegal aliens into the U.S.

Such a policy falls into a logic trap that is well known to
economists. It lacks what they call "time consistency.'' We
feel sympathy for the folks already here, but don't want to allow
more illegal immigrants in. Yet as we work out a solution that
may take years to become effective, if it ever does, there will
arrive a whole new population of illegal immigrants who we will
feel sympathy towards.

If we are willing to grant amnesty for immigrants today, we
will be willing to grant amnesty again five years later. History
appears to bear this out. Some are comparing Specter's proposal
to a 1986 bill, signed by Ronald Reagan, that offered amnesty to
millions of illegal immigrants, and did little to stem the inflow
of more of them....

... Accordingly, there really should be only two immigration policies
to choose between. We can round up all of the illegal residents
today and ship them home, crack down hard at the borders, and
promise to do both again and again forever.

Or, we can find a way to ease the path toward citizenship
for current residents, establish generous rules for entry into
the U.S., and be willing to load anyone who doesn't follow those
rules into a bus and ship them home.

The Frist approach resembles neither. The Specter approach
resembles the latter, and is the far better policy.

Although I strongly prefer an approach that leads to legal work status, I'm not sure why a policy that strictly shuts down the borders is necessarily time inconsistent unless you begin with the presumption that border enforcement is not possible. But in that case, it would seem that the Frist-McCain-Kennedy plans run into exactly the same sort of problem. If the borders remain porous, and guest worker programs too conservative, illegal entry will occur, and the problem that Hassett emphasizes rises up again. (See, for example, the heart-tugging picture, and accompanying tale, posted at Econbrowser.)

I'm not willing to concede that sufficient border enforcement is impossible, combined with a guest-worker/immigration policy that keeps the cost of legal entry low (bY ensuring that quotas are sufficient to demand, for example). But the point is well taken: We should probably be leery of any policy that does not confront the very human impulse to behave in a time-inconsistent fashion.

Bonus: Hassett also discusses the research on the "diversity gains" of immigration, covered last week at Angry Bear.

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» Immigration from Immigration
An immigrant is someone who intends to reside permanently, and not a casual visitor or traveler.Since the reorganization three years... [Read More]

Tracked on Apr 11, 2006 9:30:04 AM

» Immigration from Immigration
An immigrant is someone who intends to reside permanently, and not a casual visitor or traveler.Since the reorganization thr... [Read More]

Tracked on Apr 12, 2006 1:45:06 PM

Comments

I really think we need an economic solution if we are to make real progress on this issue. We create far too many jobs unattractive to native workers and too attractive to illegals and this creates the same draw as drug consumption does on illegal trafficking. Doubling the minimum wage and enforcing it would help considerably by reducing demand for illegals.

We're going to be hard on illegal immigrants today, and hard on them tomorrow. There will be no amnesty or any other program to make their lives easier once they get into the U.S. When we discover them, we will deport them. We will crack down on employers and we will monitor the borders.

Or:

We're going to be easy on illegal immigrants today and easy tomorrow. We will provide a path for them to become U.S. citizens, and this path will be open to future illegal immigrants. People who manage to get here illegally will be as free to go onto this path as people who have been here illegally for some time. Illegal immigrants will not be deported but will be encouraged to become legal. Employment of illegal immigrants will be encouraged, as long as the immigrants are heading towards legal-immigrant status.

You dumb asses Americans are so full of crap we came here stole this country from Native Americans and now think we have the right to tell people not to come into this country horse shit...if you are to lazy to take a job then let someone who will do it take it!!!

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